Debt has become an attractive asset class with yields on even good quality papers rising to around 8 percent, believes Ashish Shanker, MD & CEO, Motilal Oswal Private Wealth.
In an interview with Business Standard, he said that in the last two years, clients had gone overboard on equities leading to lower-than-planned debt exposure.
"We are now trying to bring the portfolios back in line. Fixed income allocation is rising in most of our client portfolios. We are also ensuring that the equity allocation is in the right sectors. The growth is comparatively more broad-based now. Sectors like industrials, metals and real estate, which were out of favour before the pandemic, have come back on the growth path," he was quoted as saying in the report.
Talking about asset allocation formula, Shankar said that the first step is to prepare a blueprint called an investor charter on the basis of a client's return expectations, risk appetite and liquidity requirements, added the report.
"For example, we would advise 70-75 percent allocation to fixed income and rest in equities for conservative investors wanting 8-10 percent return. Someone wanting 10-12 percent will be given a portfolio with a higher equity exposure. There are also other nuances like tax considerations when designing a portfolio," he said, as per the report.
He also advises investors not to fall prey to near-term returns when investing in mutual funds. Future returns have very little to do with past performance. In fact, it's the reverse, he told BS.
"The way to identify the right fund is to look at rolling returns (which is a better indicator of consistent performance than point-to-point returns). Secondly, look at the track record. Ensure that the fund manager has at least 10 years of experience. One secret to making extra money is to give money to a reputed fund manager who has not done well in the last three years. There are always high chances of them making a strong comeback," he was quoted as saying.
According to him, new investors should keep it simple. There are three simple portfolios from which they can choose – 25 percent in equity and 75 percent in debt, 50 percent in equity and 50 percent in debt, or 75 percent in equity and 25 percent in debt, mentioned the report.
If you are investing for the long run, start with 50: 50, advised Shankar